Political Economists Denounce Social Studies of Finance for Overlooking the Political

The first day of the Parisian “Reembedding Finance” conference ended up in a controversial storm. The workshop, as planned by Olivier Godechot, was an attempt to emphasize the non-Actor-Network aspects social studies of finance. “The social studies of finance is not STS with the ‘t’ exchanged for an ‘f,’” he said, in reference to the acronym of Science and Technology Studies. And the political economists that came to the workshop, led by Karel Williams, corresponded the invitation by mounting a denunciation of the social studies of finance as “nerdish case studies” of the economy.

The Financial Innovation Liturgy

The context of this denunciation is Williams analysis of the (so far) admittedly timid regulatory response to the credit crisis. The bankers, Williams believes, have not been sufficiently punished for their sins. The reason for this injustice is to be found in political economy. The rhetoric mobilized by the bankers about their own social value to the economy (tax revenue and financial innovation) has successfully become a “liturgy.” There has not been a successful response to this liturgy because of the narrow interests and structural constraints of the political actors that can provide it. Politicians, on the one hand, are happy to stick to appearances by looking aggressive towards bankers in congressional hearings… without ultimately doing much. And regulators find it tough to alter the status quo because unilateral reform in London or New York would just cause capital flight to the rival center.

In sum, the juxtaposition of the different interests of the actors has led to the non-reform of finance. “Where you sit is where you stand,” Williams says. Stalemate. Bankers are getting away with the crisis.

The presentation, delivered with an effective tone of moral indignation, made a sudden turn in the Q&A. It turned the critical focus away from bankers, and towards the social studies of finance.

The radical challenge from political economy

Karel’s challenge to the social studies of finance came as a response to my own question. I was particularly unsatisfied by his reduction of social action to simple interests determined by professional affiliation. Politicians (all of them) want this, regulators (in their entirety) want that, and bankers behave in yet this other fashion.

“The strength of your account,” I told Willaims, “lies in its simplicity. What you argue is that cunning bankers, in conspiracy with politicians, duped the public with over-complex business models.” But the truth is more complex, I added. Securitization remains alive, and is being used now to finance the investments in clean tech that will hopefully cool the planet. The pioneer in mortgage CDOs, JP Morgan, has come out unscathed by the crisis. And the problems of Lehman and Bear was most likely not an agency conflict: both of their CEOs had their interests perfectly well aligned with the shareholder, as they had all their fortune tied up in bank stock, and lost it with the banks failed. The credit crisis, in other words, is far too complex. It does not fit most simple narratives such as agency theory or “financial innovation is bad.”

Karel’s response, cogent and impassioned to a degree rarely seen in sleepy academic conferences, was an overarching critique of the social studies of finance. These, he argued, are “nerdish studies of the economy.” And he had “enough studies that distinguish between good and bad bankers, whether coming from you or Gillian Tett because there are always two bad bankers that bring down the entire system.” And just as he finished saying this, the moderator called up time out. End of discussion. On to the next presentation.

The controversy, however, had barely begun. Has SSF lost itself in a maze of technical studies? Should it be dumping the careful multiyear ethnographies and take up political economy? What, in other words, is the proper SSF response to the political economists?

Over Perrier and later at dinner, an inspiring conversation with Anette Mikes, Liliana Doganova and Olav Velthuis, it became clear that this challenge is neither new nor worrisome. We’ve been here before. I first heard this in 2004, in Paul Du Gay’s critique of my presentation with Fabian at the sociology of finance workshop in the Open University. It is also replay of Mirowski’s controversy with Callon four years ago at the Performativity Workshop in this same city. And I heard it yet again from Neil Fligstein last year at the Berkeley “Markets of Politics” workshop that I co-organized. Macro sociologists of fault the social studies of finance for the same reason Hollywood moviegoers eschew European movies… too much moral ambiguity. So much easier to have indians and cowboys, gangsters and heroes, bankers and innocent home-buyers.

Critique vs. insight

The moral imperative to denounce deserves thought. I am often asked, “how can you study this people in reference to bankers?” and “how come you are not dumping on them?”. But I’ll say this: I’ll take empirical insight over critique anytime. As an ethnographer, I try to generate new insights. I do that by exposing myself to surprise. And the only way to expose myself is to suspend, to some degree, my own moral judgment about the people I am studying until you see their actual actions. Individuals are complex and multifaceted. Crusading makes me miss that complexity.

Criticism is applied in political economy by portraying actors as fundamentally driven by neat and simple interests. This can be powerful when things are that simple. But pragmatically, the problem I always had when trying to fit the macro picture painted by the political economists – greed, recklessness or lemmingness – I don’t actually see it. In this vein, what my presentation will show is (1) the importance of being open to the habitus and traits of the traders; (2) the aggregate events we observed cannot be directly mapped to individual traits; (3) the importance of understanding how the material artifacts are shaping individual behavior.

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